On Corruption and Countervailing Actions in Three South Asian Nations

We argue that readily available data and information in newspaper stories enable one to discern the nature and patterns of corruption and to understand actions taken to combat corruption. We analyze and compare numerous newspaper reports of corruption in India, Sri Lanka, and Bangladesh. Using analysis derived from existing theory of corruption, we demonstrate how information in news accounts improves our understanding of corruption. Bangladesh had more coercive corruption, with countervailing actions dominated by direct actions of victims. In India and Sri Lanka, corruption was generally collusive, with countervailing actions on behalf of victims frequently leading to legal actions and investigative reports.     

Corruption and competition in procurement

We consider a procurement problem in which the procurement agent is supposed to allocate the realization of a project according to a competitive mechanism that values bids in terms of the proposed price and quality. Potential bidders have private information about their production costs. Since the procurement agent is also in charge of verifying delivered quality, in exchange for a bribe, he can allow an arbitrary firm to be awarded the realization of the project and to produce a quality level lower than that announced. We compute equilibrium corruption and we study the impact on corruption of the competitiveness of the environment, and in particular of: (i) an increase in the number of potential suppliers of the good or service to be procured, and (ii) an increase of competition in the market for procurement agents. We identify the effects that influence equilibrium corruption and show that, contrary to conventional wisdom, corruption may well be increasing in competition.     

Adjustment to trade reform in Ecuador

This paper simulates output adjustments and income redistribution in Ecuador with the emerging Free Trade Agreement of the Americas (FTAA). The Specific Factors (SF) model of production is used to develop comparative statistics elasticities of changing prices on factor prices and output as Ecuador adjusts to free trade. Skilled and unskilled labor stands to lose due to falling prices in the services and agricultural sectors. Returns to capital and output fall in sectors exposed to import competition while they increase in sectors expected to enjoy higher export demand. The magnitude of the adjustment is large.     

Financial factors and the margins of trade: Evidence from cross-country firm-level data

Using a large cross-country, firm-level database containing 5000 firms in 9 developing and emerging economies, we study how financial factors affect both firms' export decisions and the amount exported by firms. First, our results highlight the importance of the impact of firms' access to finance on their entry decision into the export market. However, better financial health neither increases the probability of remaining an exporter once the firm has entered, nor the size of exports. Second, we find that financial constraints create a disconnection between firms' productivity and their export status: productivity is only a significant determinant of the export decision if the firm has a sufficient access to external finance. Finally, an increase in a country's financial development dampens this disconnection, thus acting both on the number of exporters and on the exporters' selection process. These results contribute to the literature documenting the role of fixed costs and of the extensive margin of trade in total trade adjustment, and provide micro-level evidence of the positive impact of financial development on trade found by previous literature.     

中国遭遇国际贸易摩擦的必然性与合理性研究

2008年全球性金融危机之后,贸易保护主义重新抬头,中国遭遇的国际贸易摩擦愈演愈烈。但是通过贸易理论分析和世界经济、中国经济的发展实践来看,中国遭遇国际贸易摩擦有其必然性和合理性,它是中国经济和对外贸易所处历史阶段下的必然产物,国际贸易摩擦有其存在的合理性。     

The evolution of corruption and development in transitional economies: Evidence from China

It is widely accepted in the literature, that the level of corruption is negatively and robustly related to economic development. However, skeptics argue that for transitional economies, this relationship may not hold. Economic reform loosens up the control of local officials and can increase corruption; Corruption and per capita income can be positively related. Using panel provincial data of China from 1995 to 2014 on prosecuted cases of corruption, we discover that during the early phase of China’s economic reform (during Zhu Rongji and Hu-Wen administrations), a positive short-run relationship is indeed observed. But, there is a robust negative long-run cointegration relationship between corruption and per capita income. The development of the market economy improves private wage and income in the long-run. The relatively inefficient and low returns to ordinary corruption cannot compete with rising market returns, which lead to dwindling corruption. However, the share of major corruption cases is increasing over time to be able to compete with rising market wages.     

Corruption,workforce selection and mismatch in the public sector

We examine the impact of corruption on workforce selection and personnel allocation in the public sector. Using Italian data, we find that the selection of public employees in terms of human capital worsens in comparison to that of their private sector counterparts in areas with higher levels of corruption. Moreover, corruption is associated with educational mismatch in the allocation of human resources and, in particular, with an increase in the rate of under-qualification. These results are robust to several alternative indicators and specifications, including IV estimation using past dependence on public spending and the historical relevance of foreign domination as exogenous sources of variation for current corruption.     

The high road and the low road to international competitiveness: Extending the neo‐Schumpeterian trade model beyond technology

Extending the neo‐Schumpeterian trade model, we estimate a ‘social‐gap’ model for a group of 17 OECD countries over the period 1975–1995. We find that government spending on social protection, employment protection regulations, union density, strike activity, and income security in the labor market (all measured in ‘gap’ form) are statistically significantly related to changes in international competitiveness. Specifically, we find some support for a Calmfors–Driffil, nonlinear, relation between cooperative labor relations and social spending patterns on the one hand, and international trade (and inward foreign investment) competitiveness on the other, implying that countries with relatively stronger institutional arrangements have better international economic performance than countries in the middle of the scale of conflict and cooperation. Our results indicate that models focusing solely on innovative effort are misspecified, and may suffer from an omitted variable bias caused by the absence of consideration of other institutional factors influencing international trade and investment.     

Keynes,the socialisation of trade,and international monetary institutions

While Keynes began formulating his ideas concerning the post-WWII international financial system in the early 1940s, the genesis of these ideas can be traced to his earlier work. The Keynes Plan represents the culmination of his search for adequate institutions that guide economic activity for the public good. The reasons given by Keynes for the establishment of an International Clearing Bank are relevant in the modern international economy, given the current imbalances in international trade. As Keynes argued for the socialisation of investment as a method to achieve full-employment in the domestic economy, he argued for the “socialisation of trade” as a method to achieve international economic balance among nations.     

Tariff pass-through and the distributional effects of trade liberalization

This paper estimates the distribution of welfare gains due to the trade reforms in India by simultaneously considering the effect on prices of tradable goods and wages. The cost of consumption for each household is affected by the domestic price changes, while wage incomes adjust to these price changes in equilibrium. Three rounds of the Indian Employment and Consumption Surveys are used for the analysis. The price transmission mechanisms are estimated for both rural and urban areas to understand the extent to which the trade reforms are able to affect the domestic prices. In order to assess the distributional effects, a series of nonparametric local linear regressions are estimated. The findings show that households at all per capita expenditure levels had experienced gains as a result of the trade liberalization, while the average effect was generally pro-poor and varied significantly across the per capita expenditure spectrum.     

International production fragmentation,trade in intermediate goods and environment

This paper examines the implications of growing international production fragmentation-induced trade in intermediate goods on environmental quality. Specifically, by making use of a general equilibrium framework, this paper explores the link between trade in intermediate goods and pollution in a setting of endogenous environmental policy. The paper shows that international trade in intermediate goods, through an increase in the number of components available to the international producers, affects the level of pollution and environmental quality. Specifically, developed countries may reduce pollution at the cost of more pollution in developing countries.     

Evaluating the effects of embodied energy in international trade on ecological footprint in China

Based on sub-sectoral level of economy and detailed traded items, embodied energy (EE) in international trade flow in China is estimated during 1996-2004, and the effects of EE on sustainability are quantified by using one of the most popular indicators—Ecological footprint (EF). A framework of EF method, which is more relevant to realism of specific country, is proposed in this paper. The results show that China is a net importer of EE during the period covered by this study except for the year from 1997 to 1999. Imported, Exported and Net imported EE tends to increase sharply along time series. Net imported energy would increase 38% and energy consumption would increase 2.8% in 2004 if EE were taken into account. Footprint_energy is the most important part of EF components and is significantly affected by EE, and the effects of EE on EF are similar to that of Footprint_energy. Footprint_energy, EF and ecological deficit of 2004 will be underestimated about 2.92%, 1.36%, 2.83%, res pectively, if EE is not taken into the national energy budget. Continuous increase of EF and ecological deficit along time series indicates that China is moving away from sustainability. 1.47 times Chinese territories are accurately occupied by China in 1996 while 1.71 times in 2004. Obviously unsustainability procedure of China is accelerated by EE. The contribution of EE to EF and ecological deficit is small in absolute terms expressed in per capita, but the effects on whole nation are huge if the population of China multiplies them. To curb the increase of EF and ecological deficit and to achieve the goal of sustainability, some policy and measures are also proposed.     

The trade balance and the terms of trade in a two-country two-sector OLG economy

We consider a two-country, two-sector OLG model. It is shown that the trade balance and the relative price of exports are always positively related when exports are labor intensive regardless of the elasticity of intertemporal substitution in consumption. A large response of savings to future prices becomes a sufficient condition for an inverse relation between these variables only if exports are capital intensive. In this case, a rise in the terms of trade can be followed by a trade balance decline if consumption goods are capital intensive and the income effect implied on savings is negative and large.     

Neckties in the tropics: a model of international trade and cultural diversity

Abstract .  Some cultural goods are consumed socially and are characterized by the same consumption network externalities as languages. Also, producers of new cultural goods in any one country draw on the stock of ideas generated by previous cultural production in all countries. For such goods, costless trade and communication tend to lead to the dominance of one cultural style, increasing utility in the short run but reducing quality and welfare in the long run. Increasing protection while keeping communication costs low may stimulate production of cultural goods that are 'compatible' with the dominant style, adding little to the stock of usable ideas.     

The effects of federal regulations on corruption in U.S. States

Using the newly constructed Federal Regulation and State Enterprise Index (FRASE Index) to measure the federal regulations and the existing Corruption Convictions Index (CCI), we investigate the effects of federal regulations on corruption in U.S. states. Controlling for several demographic and economic variables including the Fraser Institute’s Economic Freedom Index (EFI), which measures the size and scope of government in U.S. states, we find a positive and statistically significant relationship between federal regulations and corruption. Our findings have important policy implications. A 1 standard deviation increase in FRASE Index causes CCI to increase by approximately 0.5 standard deviations. Standardized coefficient of EFI is also approximately equal to 0.5. In other words, it is possible to mitigate the effects of regulations at the federal level by reducing the size and the scope of the government at the state level.     

Does international openness affect the productivity of local firms?

This paper examines how international openness can change firm productivity in south‐eastern Europe (SEE), a crucial question for middle‐income countries. Using firm‐level data for six transition economies over the 1995–2002 period, we identify whether foreign ownership and propensity to trade with more advanced countries can bring about higher learning effects. We find that: (i) foreign ownership has helped restructure and enhance the productivity of local firms in four out of six countries; (ii) exporting to advanced markets has a larger impact on productivity growth in four countries, especially when the firm's absorptive capacity is taken into account; (iii) in contrast, exporting to the less competitive markets of the former Yugoslavia seems to negatively affect productivity growth in three countries; and (iv) learning effects from importing are similar to those from exporting. Our results suggest that trade liberalization is not uniformly beneficial. Regional composition of trade flows and absorptive capacity of local firms matter. Thus, trade liberalization within the SEE region may not provide a substitute for a general trade liberalization which includes access to the more competitive markets of countries belonging to the Organization for Economic Co‐operation and Development.     

Effects of Islamic religiosity on bilateral trust in trade: The case of Turkish exports

Using a rich firm level data set for Turkish manufacturing, we test whether sharing similar religious beliefs with potential contracting parties drives a firm’s first time entry into export markets. We exploit variation in the practice of Islam across Turkish NUTS3 regions and we find that firms located in regions characterised by stronger religiousness are more likely to enter export destinations with a higher share of Muslims among their population. This result is robust to the control for past trade, common language, cultural and migration ties as well as for selective trade policy in favour of politically connected religious business groups. In particular, religious proximity eases export entry for producers of “trust intensive” goods, it favours subsequent foreign market entries and reduces the export exit probability. All in all, our evidence supports an export enhancing effect of religious proximity working through export sunk costs reduction rather than through similarity in preferences.     

Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries

Increasingly, a small number of low-wage countries such as China and India are involved in incremental innovation. That is, they are responsible for resolving production-line bugs and suggesting product improvements. We provide evidence of this new phenomenon and develop a model in which there is a transition from old-style product-cycle trade to trade involving incremental innovation in low-wage countries. The model explains why levels of involvement in incremental innovation vary across low-wage countries and across firms within each low-wage country. We draw out implications for sectoral earnings, living standards, the capital account and, foremost, international trade in goods.     

National levels of corruption and foreign direct investment

We model the relationship between bilateral foreign direct investment (FDI) and the level of corruption in multinational firms’ (MCNs’) home and host countries. We construct and test a model of bilateral FDI between countries that differ in their levels of corruption. FDI is affected negatively both by the level of corruption in the host country and by differences in home- and host-country corruption. Our model emphasizes that MNCs develop skills for dealing with home-country corruption, and these skills become a competitive advantage in similarly corrupt host countries. We test the model using data on bilateral FDI stocks among a large number of home and host countries, using a variety of specifications and estimation strategies to provide robustness. Our results show that the effects of host-country corruption and of differences in corruption levels between home and host countries are statistically and economically significant.     

An empirical investigation of the balance of embodied emission in trade: Industry structure and emission abatement

By constructing the world panel dataset for the pollution emission embedded in international trade of 132 countries for the period between 1988 and 2008, we investigate whether the balance of embodied emission in trade (BEET) is consistent with the implication of pollution haven hypothesis (PHH). By using two differently constructed datasets, we are able to distinguish between the composition (i.e., changes in industry structure of international trade) effect and the technique (i.e., improvement in emission abatement) effect. We find that the composition effect is neither related with the income level nor the democracy level of countries. However, the empirical evidence, with consideration for the technique effect, provides a partial support that income level is negatively related with the BEET. Therefore, the BEET in fact has worsened for developing countries, but not by the composition effect assumed in the PHH.